- President Biden’s stimulus plan was “significantly larger” than the Fed expected, the FOMC protocol showed.
- Members also stressed that it will likely be some time before the Fed considers political changes.
- The $ 1.9 trillion measure, along with vaccination and reopening, increased the Fed’s growth prospects.
- See more stories on Insider’s business page.
The U.S. rescue plan adopted by President Joe Biden last month was bigger than that
policy makers had expected, according to minutes of the Federal Open Market Committee meeting in March.
Committee members unveiled a more optimistic outlook for the U.S. economy on March 1
“The size of the ARP required in March was significantly larger than what the staff had assumed in the January planning,” the minutes of the meeting showed.
The new stimulus plan and easing of social distancing measures contributed to expectations of “significant” growth in gross domestic product by 2021. Fed decision-makers also expect continued vaccination will allow for further easing of lockdown measures and drive strong growth over the next two years. according to the FOMC protocol.
The Fed chose to keep interest rates close to zero and maintain its pace of asset purchases in March. While the central bank’s updated outlook suggests the strongest growth since the 1970s, it is still “not yet” time to consider tightening monetary conditions, Fed Chairman Jerome Powell said at a March 17 news conference.
“The state of the economy in two to three years’ time is very uncertain, and I do not want to focus too much on the timing of the potential rise in interest rates so far into the future,” he added.
The protocol, released Wednesday, sheds more light on the Fed’s plan to maintain its ultra-light monetary stance. Attendees noted, “it will likely take some time until significant further progress” towards the Fed’s maximum employment targets and inflation targets above 2% will be met, according to the minutes. Powell has repeatedly cited “significant further progress” as the threshold for when officials might consider shrinking its asset purchases.
Those who fear an unexpected withdrawal of Fed support can find solace in the FOMC minutes. Several meeting participants stressed the importance of giving markets clear communication on how the central bank assesses progress towards its goals, the minutes showed. The Fed indicates “in good time” when considering a change in its asset purchase plan, the minutes added.
The meeting documents underscore how the Fed is sticking to its message, said Brad McMillan, chief investment officer at the Commonwealth Financial Network.
“The big message from the Fed protocol is that the central bank is as concerned about inflation as it is public,” he said in an email statement. “There seems to be no hidden interest in higher rates, suggesting that rates will actually remain low until unemployment falls to pre-pandemic levels.”